Friday, April 16, 2010

Three reasons Tea Partiers are wrong on taxes

1) Tax cuts boost government spending.
Supply and demand, government appears cheaper than it really is under low tax regimes, hence people buy more of it
2) Tax increases help growth, especially when they decrease government spending.
Tax hikes raise the price of government such that Congress and the administration are forced to get more bang for the buck. Progressive tax increases are especially useful as they make it more painful for firms to shift expenses onto government. We get less government under higher taxes.
3) Tax rates are reaching wonderful levels where higher rates bring in less money.
We want to make government painful and barely affordable such that government productivity continuously improves.

Flat taxes make the most sense for local governments that deliver retail services. At that level, flat taxes appear more as a fee for service and consumers of government watch their tax dollar. At the federal level,the average consumer has no method to manage a profligate Congress, and when the super wealthy have low taxes, they tend to rely on government to absorb much of the labor costs making continuous federal government expansion likely.

Let me make the reductio ad absurdum argument. If federal taxes were 100% how much federal government would we have? See my point.

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